Saturday, August 17, 2013

Terrible aspect of Obama/Bernanke years has been harsh punishment of retirees with near 0% interest on savings which creates a mass wealth transfer to speculators and indigent (and of course the unemployed through no fault of their own) whilst having done little to improve the real unemployment rate. There may well be Worse for savers to come as they were forced into speculative sharemarket because of artificially low interest rates. A crash will destroy them.The market is currently on a downturn,whether this marks the start of a major correction is unknown but one will come.Now the US$ is sinking like a stone, whilst 10 year interest rates rise.Deliberate assistance to exporters whilst punishing hard hit savers? It is inevitable that there will be a major share market correction andsavers will see their supposed gains wiped out with the further loss of the potential albeit minuscule interest they may have had in whatever savings vehicle might have given them the best gain. Retirees don't often have the "ten years period to smooth out market ups and downs" and any major crash will be disastrous for many.

I reproduce expert opinion on this terrible policy of causing untold human misery from two posts written earlier this year. The message, allowing for market fluctuations, is at core still sadly valid, and will have untold consequences. the destruction of the middle/lower middle class in Germany through market calamities was the final factor in bringing Hitler to power-who knows what might happen in America if a similar thing happens in the near future after the collapse of "Hope and Change"?

I wrote previously (reproduced below this post) that the Fed's low interest rate policy marked one of the biggest thefts in history. It is, by giving savers,the thrifty,the conservative, the honest, a return on savings below the rate of inflation with bank deposits etc, the biggest shift of money ever in an attempt to reflate the economy. The result has been patchy at best after four years but the loss of income for savers is a certainty. This has forced many into the speculative stock market which has,with ups and downs, given a return. However it comes with anxiety and uncertainty and could end in tears-the savers after a lifetime of toil, don't deserve to be treated so callously.Economic commentator Jim Willie discusses (full article AT THIS LINK) another aspect of the Fed's interest rate policy-the distortion in the marketplace it causes and the possible long term results. That negative results are a near certainty is in line of course with what happens when the government interferes in the free market. Willie is colorful in his language but that does not mean that his premises are wrong and many of the truths he espouses are time proven and obvious. Food for thought and a reinforcement of conservatism.*******************************************************************

$TRILLION USGOVT DEFICIT LOCKS 0% RATE

Few analyst seem to report a basic factor. The USGovt cannot afford a higher rate on borrowing costs than 0%, not now and not ever. So it will become permanent. This is the New Normal with ugly warts. There can be no Exit Strategy, since the government finances dictate no change. A normal borrowing cost would mean the debt finance cost would rival the defense budget in cost, and overshadow the Medicare cost. The USGovt deficit thus locks the 0% rate and puts the USFed in a monetary straitjacket. They refuse to discuss it, but instead wiggle around with feeble explanations of its continued policy. Notice the extension into 2014 of the accomodative 0% rate. What a farce! What a tragedy! What a pathetic excuse of a central bank! A vicious cycle is underway where the gargantuan federal deficits require continued 0% costs to finance them, but the 0% cost of money has its own heavy effect and damaging toll. The biggest insurance policy to the gold bull market is the USGovt and its runaway deficits.

DESTRUCTIVE DAMAGE OF 0% MONEY

The Jackass message has been steady and relentless. The 0% cost of money makes for a grotesque distortion in asset prices, all of them. Nothing is properly priced. The free money results in rising cost of everything rising. All categories rise inexorably within the cost structure. Wages do not, thanks to the forfeit of industry to Asia, in particular to China. So the squeeze on capital continues unabated and with ferocity. Capital is killed. By that is meant that marginal businesses and segments of business units within larger corporations will gradually respond to higher costs (equipment, materials, fuel, shipping) by closing the businesses. Workers are cut, but more importantly capital is retired, equipment is turned off, and capital is liquidated. A truck or machine or computer or telephone system might be sold off. The rising costs and more rigid final product prices dictate business shutdowns, since the profit margin is squeezed, then goes negative, forcing business decisions. The destructive effect on working capital from 0% money remains the single most blind spot of American and Western economists. They call it stimulative, when it is the exact opposite. They are badly educated. They are compromised by their paychecks. They are dead wrong, blind to the death of capital beneath their arrogant noses. Gold will benefit from the free money provisions, and head north of the $2000 price with ease. Gold will serve as capital sanctuary under attack.

HEAVY RELIANCE ON MONETARY INFLATION

As foreign creditors continue to shed USTreasury Bonds, the US Govt is left with a growing and near total dependence upon the US Federal Reserve to purchase its debt. It has no choice but to rely upon the inflation machinery apparatus to buy the USTBonds. Few bond dealers wish to continue, but their hope is not to be stuck with inventory, should the USFed stop buying. The dealers are acting as middlemen and nothing more. China continues to unload USTBonds, the latest month showing more of the same recent pattern. As Valery Giscard d'Estaing called it, the US benefits from the "Exhorbitant Privilege" of abusing the global reserve currency to finance its own debt in an unaccountable manner. Worse, the United States though the powerful forces of the Competing Currency War, has forced all major central banks to participate in the heretical 0% money policy. Nations that opt not to play the game will suffer from a rising currency exchange rate and damaged export industry. The major central banks are collusive in their policy, the effect being a Western world capital destruction slow burn. See the Global QE as it involves the US, Britain, Europe, and Japan not only in setting interest rates absurdly low, but in vast bond purchases wrapped in monetization schemes. Once upon a time 20 to 30 years ago, such schemes were called highly destructive and extremely unwise. Today they are normal tools. Gold will benefit from such powerful monetary inflation and debasement of money itself.

COLLAPSE OF SOVEREIGN DEBT FOUNDATION

Holding like pillars the debt-based monetary system are the major banks. Their profound insolvency serves as proof positive of the broken structures of the monetary system itself. This is so plain to see. A mere FASB paper mache glued onto a rotten pillar does not permit it to bear weight. The legitimate matter behind the pillars is surely being siphoned as mass to other locations, while the farce of patch solutions continues with each passing month. The inescapable fact is that the world requires a new monetary system. To put it into place requires the liquidation of the old banks and sovereign bonds, which would mean making paupers and vassals out of the elite masters. So the game goes on.

US ECONOMY MORIBUND WITHOUT INCOME

The concept of a jobless recovery is a bad joke. Such a concept does not appear in economics textbooks or its legitimate lexicon. The expectation of recovery without vast income machinery is a fantasy. The decision to ship US industry to Asia in the 1980 decade saw a climax in the 2000 decade with the advent of China. In doing so, the USEconomy lost its legitimate income sources and turned to inflating assets to power the national economy. It was the singlemost destructive trend in modern United States history on a financial basis.Income was replaced by debt, and the rest is history, where economists should be forced to inscribe the epitaphs. Stimulus programs at the USGovt level are mere plugs for state deficits. Infrastructure projects turn out to be funnels for Chinese contracts. As Kurt Richebacher told me in August 2003, as best recalled, "A nation that lacks industry is doomed, as it must at least dominate in transportation and steel, but the United States does not anymore." The financial press and banking leaders curiously serve up endless nonsense in viewpoints, that the US consumer is the engine. It is not. The engine is industry, and the USEconomy sorely lacks it. Unless and until the USEconomy brings back industry, factories, and all the supply chain encoutrements, the nation will remain moribund and without adequate income. The latest data, the December trade gap, shows a record setting $52.5 billion monthly deficit. This is not an economy in recovery. The rising energy prices are yet another crippling factor. A loud echo can be heard in Japan, where the nation is shocked by the reality of steady trade deficits, never seen in recent history. The power structure is to be turned on its head.

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Fed's Near Zero Interest Rate Policy-Recipe For Disaster?

In an article at Yahoo Finance from US News and world report by Philip Moeller entitled "Near Zero Interest Rates Challenge old Bond Portfolio Rules AT THIS LINK Moeller leads with the following;

"With the Federal Reserve publicly committed to keeping short-term interest rates near zero until the end of 2014, investment advisers are scrambling to find sources of retirement income for older clients."

For those who have worked and saved all their lives and retired in the expectation, after careful budgeting analysis, that their investments would return a moderate income from reasonable interest rates the Fed's low interest rate policy has meant a substantial drop in their life style. We are not talking about the rich, or even the moderately well, off to whom a drop in income would be a nuisance or the foregoing of some luxuries, but rather the average person with an average retirement savings whose lifestyle has been severely impacted.

Not only has there been a loss of income for these people who put their trust in honesty,thrift and America but they have been also hit by uncertainty and worry as they scramble to make up for the loss of income-if they chose that path.-again, from Moeller's report;

"We're not dramatically shifting because of the current interest-rate environment," he explains. Like many advisers, Meehan thinks the decline of interest rates during the past few years has provided bond investors with attractive capital gains. But with rates so low, he says, "bonds are more of a yield game at this juncture than about capital appreciation." And yields are so low that "yield-oriented investors are in a very perplexing situation."

"Most investors have spent virtually their entire investing lives in a period of falling yields and increasing bond values--bond heaven," says Marilyn Capelli Dimitroff, an adviser in Bloomfield Hills, Mich. "With rates near historic lows, the upside potential for returns in bonds is limited, and the downside risk, longer term, is large--the opposite of bond heaven."

Her clients' portfolios are generally composed of growth and stability portions, she says. The Fed's policy has "drastically reduced" income in clients' stability holdings. At the same time, the Fed's move has not altered clients' expectation for low volatility in fixed-income holdings. "As a result, we are more likely to increase allocations to equities than to chase yield [in fixed incomes] by extending maturities or compromising credit quality," she says."

As can be seen, to chase higher yields through bonds leads to uncertainly as all the old paradigms are out the window. This uncertainty leads to worry and distress for older people and,if they have to seek out financial advisers in respect of investing in the complex bond markets, the possibility of fraud and the certainty of costs to have their saving managed.

This is compounded further by looking to the share market. Certainly a case can be made that in the period of low interest rates the market has gone up which would have compensated for the loss of interest income. But how many elderly could cope with the massive market ups and downs of recent years. What would their returns be after management fees? The market for 2011 finished up exactly where it started at years end and with fee deduction the investor would have been behind, with inflation chipping further away at their savings.

Of course many retirees would avoid the market altogether thinking, perhaps justifiably, that although they might make a short term gain, possibly, the risk of a market collapse is highly possible as well what with the unstable international environment and the USA's debt crisis.

The Fed's low interest rate policy is in place to try and kick start economic activity. So far it has been a miserable failure with real unemployment at 15% and debt upon debt piling up to who knows what Grecian type of ending. This Obama administrationsupporting effort has come from the purses and toil of the elderly and all savers and is the biggest theft in world history.

A cynic would consider that that result is obvious to those running the show but the savings generation will die off, perhaps some hastened to their ends by worry, and long term their votes will not be counted. 2012 gives them a chance to reverse the interference of the government in the natural workings of the market which is the only proper solution to any economic problems and to generating real growth which rewards all and penalizes none.

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